Wine: the Pandemic like the 2008/2009 financial crisis, but will recovery be just as rapid?

The Covid-19 pandemic has impacted the international wine market more or less the same as the financial crisis in 2008/2009 did, according to OIV data (global consumption, in 2020 dropped -3% compared to 2019, to 234 million hectoliters, International trade decreased -1.7% in value, to 105 million hectoliters, and -6.7% in value, to 29.6 billion euros). It is difficult to visualize whether recovery will be just as fast as it was more than 10 years ago. The director of OIV, Pau Roca, commented on the data of wine and world viticulture situation, presented hours ago, in Paris, “some elements make us think it will be the same, like the recovery registered globally in the second half of 2020. Others, instead, suggest a different scenario, while still others have hypothesized that the real economic crisis due to the Pandemic is already outdated in some Countries, but in others it has yet to begin. Obviously, the scenario shows ample uncertainty. Maybe it will be possible to plan parties and celebrations again in many Countries, and this will help sparkling wines recover faster, since they are still considered occasional wines and not part of daily consumption on many markets and therefore have suffered more than other types of wines”.
There are, however, some certainties. “It is true that wine prices have dropped”, said Roca, responding to WineNews on a possible alarm regarding the stability of values, ​​“but the circumstances do not foresee things getting even worse. In the worst-case scenario, global demand will follow what happened in 2020. There will probably also be an improvement, while even after the recent frosts that have hit Countries like France, Italy and Germany, causing significant damage that has yet to be estimated, it is easy to imagine that the 2021 harvest will not be so abundant. Therefore, in terms of wine and grape prices, this suggests that values ​​should not drop further”.
The wine of tomorrow, though, will have to face structural situations. Some will be historical, such as concentration of markets; others will be accelerated by Covid-19, and have long lasting effects, such as a different distribution weight of consumption channels. In the past year, mass retail and e-commerce have grown significantly, at the expense of away from home, which have been penalized by anti-contagion regulations, subjected to long periods of closure, so in China they are a memory while in the US and the UK they are coming to an end, but in Europe, so far, they are still very present and extensive. “Today wine is consumed in 200 Countries around the world, but the top 5, namely the USA, France, Italy, Germany and the UK, are worth 50%, and the top 10 reach 70%. This situation has been stable and has lasted a long time. It illustrates how much the wine industry must work to diversify, because as the Pandemic has clearly shown, concentrating on only a few markets is a huge risk”, underlined Roca. This is true of the wine market where almost 1 bottle out of 2 (45%, according to the “Wine Market Internationalization Index” of the OIV) is consumed in a Country other than that of production. One of the best markets in which to diversify is Asia, which for many years, especially in perspective, has been synonymous only to China. “For years, we have thought that growth in consumption in China would drive the change in the wine market, because it is clear that it is a huge Country”, Roca pointed out. After years of growth and investments, consumption has certainly increased, but not as much as expected, and “perhaps we need to change perspective, because there are many Countries in Asia, obviously smaller, but where consumption is growing considerably”.
There are many issues on the table for the wine market to discuss. For instance, the real impact of the Pandemic to be evaluated in the medium-long term, the impact of Brexit, tensions regarding tariffs, which though they seem to be easing between the US and Europe, are getting worse between China and Australia, as the Chinese are accusing the Australians of dumping, imposing very heavy duties on Australian wine imports, the star player of enormous growth in the last few years.
And, last but not least, the regulation policies on consumption as well as promoting alcohol in the various Countries and areas around the world. In the European Union, nutritional indications on wine labels is still a hot issue, and so is including warnings of potential health risks, exactly the same as for cigarettes, which the EU Commission has provided in its cancer plan. The OIV has not committed to this issue and said, “we have 48 member Countries, 20 in the EU and 28 outside, it is not our place to enter into the merits of similar decisions, considering that the European Union, as an institution, is not one of our members, but some of its individual Countries are. Certainly”, Roca said, responding to WineNews on the issue, “In a market like the wine market, the measures with which governments support the supply chain or hinder it are very influential. What I can say is that we need balance. We must not exaggerate with supports because they destabilize the market, but we must also not go the opposite direction with policies that penalize it too much. In some Countries, where production and consumption are historical, it is understood that wine and its supply chain are a cultural as well as an economic heritage, and that the culture of wine also helps to combat alcohol abuse. This type of vision, of culture and the approach to wine, must be exported to the whole world”. Another thing that is certain, at least in the medium term, is that the frame, or the framework in which wine moves, is closely linked to two aspects, as Roca said. On one hand, the fundamental theme of sustainability, in every environmental, production, social and economic aspect of the wine supply chain, and on the other hand, digital innovation, which Covid-19 has accelerated immensely, not only from the trade point of view, but also communication, online tastings and so forth.
“The Covid-19 pandemic is not just an enormous economic crisis. It is also something that will change the overall scenario”, underlined Roca, “for wine, too. And, as it always happens in these cases, those able to adapt to change, or better still, those who will be capable of anticipating and guiding it, will survive and grow”.